📋 Overview: Vendor Non-Performance

Vendor non-performance occurs when a supplier, service provider, or contractor fails to deliver goods or services as promised under a contract. California law provides strong remedies for businesses harmed by vendor breach, including recovery of direct losses, consequential damages, and the cost of obtaining substitute performance.

When to Use This Guide

Use this guide if your California vendor has:

❌ Failed to Deliver

Did not deliver goods or services by the contracted deadline or at all

📋 Delivered Defective Goods

Provided products or materials that do not meet specifications or quality standards

🕑 Performed Late

Delivered goods or services after the agreed-upon deadline, causing you harm

🚫 Partial Performance

Completed only part of the work or delivered incomplete orders

Types of Vendor Non-Performance

  • Total non-delivery: Vendor fails to deliver any goods or services
  • Partial delivery: Vendor delivers less than contracted quantity or scope
  • Late delivery: Goods or services arrive after the contractual deadline
  • Non-conforming goods: Products fail to meet specifications, quality standards, or warranties
  • Defective services: Work performed does not meet professional standards or contract requirements
  • Anticipatory breach: Vendor indicates they will not perform before performance is due

👍 What You Can Recover

  • Direct damages - The difference between contract price and value received
  • Cover damages - Additional cost to obtain substitute goods or services
  • Consequential damages - Lost profits, business disruption, third-party liabilities
  • Incidental damages - Inspection, shipping, storage costs from breach
  • Prejudgment interest - 10% per year on contract damages (Civil Code 3289)

⚠ Statute of Limitations

California has specific time limits for contract breach claims. For more detail, see our California Breach of Contract Statute of Limitations Guide.

  • Written contracts: 4 years from breach (CCP 337)
  • Oral contracts: 2 years from breach (CCP 339)
  • Sale of goods (UCC): 4 years from tender of delivery (Commercial Code 2725)

Do not delay - failing to act within these periods will bar your claim entirely.

🔍 Evidence Checklist

Gather these documents before sending your demand letter. Strong documentation is essential for proving your claim and maximizing recovery.

📄 Contract Documents

  • ✓ Written contract or purchase order
  • ✓ Contract amendments or change orders
  • ✓ Specifications, scope of work, or product requirements
  • ✓ Delivery schedules and deadlines
  • ✓ Warranty provisions and guarantees

📩 Communications

  • ✓ Email correspondence with vendor
  • ✓ Written complaints about performance
  • ✓ Vendor's excuses or explanations
  • ✓ Cure demands and vendor responses
  • ✓ Phone call logs and meeting notes

📦 Delivery Records

  • ✓ Shipping records and delivery receipts
  • ✓ Inspection reports and rejection notices
  • ✓ Photos of defective goods or incomplete work
  • ✓ Quality control test results

💰 Payment Records

  • ✓ Invoices from vendor
  • ✓ Payment records (checks, wire transfers)
  • ✓ Deposit or advance payment documentation
  • ✓ Credit memos or refund requests

📈 Cover Documentation

  • ✓ Substitute vendor quotes and contracts
  • ✓ Invoices for replacement goods/services
  • ✓ Expedited shipping or rush charges
  • ✓ Evidence cover was reasonable and timely

📊 Consequential Damages

  • ✓ Lost customer contracts or orders
  • ✓ Production shutdown documentation
  • ✓ Third-party claims or chargebacks
  • ✓ Profit and loss statements

🔒 Preserve All Evidence

Do not discard defective goods or incomplete work product until you have thoroughly documented it. Take photographs, videos, and keep samples. If you need to dispose of defective goods, provide the vendor written notice and an opportunity to inspect first.

💰 Damages

California law allows recovery of comprehensive damages for vendor non-performance. Understanding the categories of recoverable damages helps you calculate your full claim.

Damage Type Description
Direct Damages The difference between the contract price and the value of what was actually received (or nothing, if no delivery). This is the basic measure of contract damages.
Cover Damages The additional cost you incurred to purchase substitute goods or services from another vendor. You must act in good faith and cover must be reasonable. (Commercial Code 2712)
Consequential Damages Losses resulting from the breach that were foreseeable at the time of contracting. Includes lost profits, lost business opportunities, and third-party liabilities. Must be proven with reasonable certainty.
Incidental Damages Expenses reasonably incurred as a result of the breach, including inspection costs, storage charges, transportation expenses, and costs of finding substitute performance. (Commercial Code 2715)
Prejudgment Interest 10% per year on contract damages from the date of breach. Available as a matter of right for breach of contract under Civil Code 3287-3289.

Direct Damages

Direct damages compensate you for the immediate loss caused by the vendor's failure to perform. The calculation depends on the type of breach:

  • Non-delivery: Return of any payments made, plus the difference between market price and contract price
  • Non-conforming goods: Difference between the value of goods as warranted and as delivered
  • Defective services: Cost to repair or complete the work, or diminished value

Cover Damages

💰 Calculating Cover Damages

If you obtained substitute goods or services after the vendor's breach, you can recover:

  • Cost of cover MINUS the original contract price
  • PLUS incidental damages (shipping, inspection, etc.)
  • PLUS consequential damages
  • MINUS expenses saved as result of the breach

Cover must be made in good faith, without unreasonable delay, and the substitute must be reasonable under the circumstances.

Consequential Damages

Consequential damages go beyond direct losses to cover the downstream effects of the breach:

  • Lost profits: Profits you would have made but for the breach, proven with reasonable certainty
  • Lost customers: Business relationships damaged by your inability to perform for your own customers
  • Third-party claims: Liability to your customers or others caused by the vendor's breach
  • Business disruption: Costs of production shutdowns, idle labor, delayed projects

⚠ Consequential Damages Limitations

Many vendor contracts contain clauses limiting or excluding consequential damages. Review your contract carefully. Such clauses are generally enforceable unless unconscionable or against public policy. However, they may not bar claims for:

  • Personal injury damages
  • Consumer goods (in some circumstances)
  • Intentional misconduct or fraud

📊 Sample Damages Calculation

Example: Manufacturing Component Non-Delivery

Contract price paid $75,000
Cover cost (substitute vendor) $92,000
Cover damages ($92,000 - $75,000) $17,000
Expedited shipping for cover order $3,500
Production line shutdown (2 weeks) $45,000
Lost customer order (net profit) $28,000
Prejudgment interest (10% x 1 year) $9,350
TOTAL DAMAGES $102,850

💡 Duty to Mitigate

California law requires you to take reasonable steps to minimize your damages. This typically means covering by obtaining substitute goods or services promptly. You cannot recover damages that could have been avoided through reasonable mitigation efforts. However, the breaching vendor bears the burden of proving you failed to mitigate.

📝 Sample Language

Copy and customize these paragraphs for your California vendor non-performance demand letter.

Opening Paragraph
This letter constitutes a formal demand for damages arising from [VENDOR NAME]'s breach of contract. As detailed below, your company failed to perform its obligations under the [CONTRACT TYPE/NAME] dated [CONTRACT DATE], causing significant harm to our business operations. We demand full compensation for our losses within [30 DAYS] of the date of this letter.
Contract Background
On [CONTRACT DATE], [YOUR COMPANY NAME] and [VENDOR NAME] entered into a written agreement whereby your company agreed to [DESCRIBE VENDOR'S OBLIGATIONS - e.g., deliver 5,000 units of Product X meeting specification ABC by June 15, 2025]. The total contract price was $[AMOUNT], of which we have paid $[AMOUNT PAID]. A copy of the contract is attached for your reference.
Breach Description
Your company has materially breached this agreement by [DESCRIBE THE BREACH - e.g., failing to deliver any goods by the agreed deadline of June 15, 2025 / delivering goods that failed to meet the contracted specifications / completing only 40% of the required work before abandoning the project]. Despite our repeated demands for performance dated [DATES OF DEMANDS], your company has failed to cure this breach. Your failure constitutes a material breach entitling us to damages under California law.
Legal Basis - California Law
Under California law, the measure of damages for breach of contract is the amount that will compensate the injured party for all detriment proximately caused by the breach. Civil Code Section 3300. For contracts involving the sale of goods, California Commercial Code Section 2711 entitles us to cancel, recover the price paid, and recover cover damages under Section 2712. Additionally, we are entitled to consequential and incidental damages under Section 2715, including any loss resulting from your breach which you had reason to know of at the time of contracting. This claim is timely filed within the four-year statute of limitations for written contracts under Code of Civil Procedure Section 337.
Damages Demand
We hereby demand payment of the following amounts:

1. Return of amounts paid: $[AMOUNT]
2. Cover damages (substitute vendor cost minus contract price): $[AMOUNT]
3. Incidental damages (expedited shipping, inspection costs): $[AMOUNT]
4. Consequential damages (lost profits, production shutdown): $[AMOUNT]
5. Prejudgment interest at 10% per annum: $[AMOUNT]

TOTAL DEMAND: $[TOTAL]
Deadline and Consequences
We demand full payment of the above amount by [DEADLINE DATE - typically 30 days]. If payment is not received by that date, we will have no choice but to commence legal action in the California Superior Court without further notice. In addition to the damages stated above, we will seek recovery of all court costs, attorney fees (if provided for in the contract or by statute), post-judgment interest, and any additional damages that may accrue. This matter may also be referred to collection agencies and may affect your company's credit rating.

Please direct all communications regarding this matter to the undersigned at the address below.
Mitigation Statement
Upon your breach becoming apparent, we immediately undertook reasonable efforts to mitigate our damages. We contacted [NUMBER] alternative vendors and selected the most cost-effective option that could meet our timeline requirements. Despite these mitigation efforts, we incurred the cover costs and consequential damages described above. Your breach is the direct and proximate cause of all damages claimed.

🚀 Next Steps

What to do after sending your demand letter and how to escalate if necessary.

Expected Timeline

Days 1-14

Vendor receives and reviews demand letter, possibly with legal counsel

Days 14-30

Response expected: payment, settlement offer, or denial of liability

Days 30+

If no acceptable response, proceed with litigation or alternative dispute resolution

If They Don't Pay or Respond

  1. Consult a Business Litigation Attorney

    Many business attorneys offer free initial consultations. Complex vendor disputes, especially those involving significant consequential damages, benefit from experienced legal counsel. Some may take cases on contingency or hybrid arrangements.

  2. Consider Mediation

    Many vendor contracts contain mediation or arbitration clauses. Even without such a clause, mediation can be a cost-effective way to resolve disputes. A neutral mediator can help bridge the gap between parties.

  3. File a Lawsuit in California Superior Court

    Business breach of contract cases are typically filed in the Superior Court of the county where the contract was to be performed or where the defendant is located. Choose between unlimited civil (over $25,000) and limited civil jurisdiction based on your damages.

  4. Small Claims Court

    For claims up to $10,000 ($5,000 for corporations), Small Claims Court offers a faster, less expensive option. No attorneys are permitted, and the procedure is simplified.

⚠ Watch the Statute of Limitations

  • Written contracts: 4 years from breach (CCP 337)
  • Oral contracts: 2 years from breach (CCP 339)
  • Sale of goods (UCC): 4 years from tender (Commercial Code 2725)

See our complete guide: California Breach of Contract Statute of Limitations

Need Legal Help?

Vendor disputes can be complex, especially when significant damages are involved. Get a 30-minute strategy call with a business litigation attorney to evaluate your case and discuss next steps.

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